​Last Friday, LinkedIn, Salesforce and Workday lost $18B in market capitalization. To put that in perspective, these three SaaS companies lost more in market cap on Friday than 15 current SaaS leaders are worth…combined.

How can this be possible? LinkedIn, Salesforce and Workday are growing revenue with sticky customers and they are targeting large addressable markets. Are they now suddenly undesirable companies?

Investors Paid Yesterday for Today’s Growth

On the contrary, public SaaS companies have largely met growth expectations and performed according to Wall St. expectations. The problem is that investors already paid for the projected revenue growth in many SaaS stocks a full 2 years earlier. Let’s look at historical multiples of Enterprise Value / Forward Revenue for the past decade. As you can see below, enterprise software multiples have largely held steady at 3-4x forward revenue. However, SaaS multiples began diverging in 2012 from their historical range of 5-6x forward revenue. This divergence peaked at the end of 2013 and has remained elevated above historical averages for 2 more years. The Black Friday correction brought SaaS multiples back in-line with enterprise software valuations. Like many corrections, the market has overshot to the downside as we at Emergence believe long term SaaS valuations of 5-6x forward revenue will return. ​

Recurring revenue business models are highly valued for recurring revenue and predictable growth engines. But what happens when predictable growth is no longer valued at predictable multiples? In the chart below, you can see what has happened to 4 of the hottest IPOs of the last few years. Workday has grown revenue from $470MM to over $1.1B in 2 years and yet their market value is down 40%. Marketo has doubled revenue over the last 2 years and their market value is down 60%. This is a really painful lesson for shareholders - it does not matter how fast revenue is growing if multiples are compressing faster. ​

There are number of factors that drive valuation multiples: future growth rates, operating margin and addressable market to name a few. For most of the public SaaS companies, the two main drivers of multiple compression have been decreasing revenue growth rates and diminishing risk appetite of investors.

Lessons for SaaS Entrepreneurs

So what does all of this mean for SaaS entrepreneurs? To be blunt, the issue of multiple compression is an even bigger challenge for valuations of private companies. Unlike the public markets which have regular earnings that ignite valuation changes, the private markets have very few catalysts for change. Private valuations have been driven upward by an abundance of capital pushing valuations higher and higher. You can see evidence of this trend in the scatterplot below of private SaaS valuations from the last decade.​

Similar to the public markets, SaaS valuation ranges began expanding in 2012. Unlike the public markets, private market valuations remained elevated through 2014. I purposefully truncated the data at the beginning of 2015 so as not to give away too much proprietary information. However, I will say that 2015 continued the trend until Q4 when fundraising became noticeably tighter – particularly in angel rounds and late stage rounds.

The direct impact of a contraction in multiples is only felt when entrepreneurs are fundraising and the end result for the market is more flat/down rounds and more situations where a startup has to drastically cut burn. Here is a scenario that I’ve seen play out multiple times in the last 3 months. Hot SaaS startup raised a large Series A 12 months ago: $8-10MM at a $40MM post-money valuation. The company projected 2-300% growth on a base of $1MM ARR. Because they raised a large A, they accelerated hiring to hit aggressive growth targets and they are now burning $600K/month. Now, that same SaaS startup is at $4MM ARR and they want to raise $20MM and they expect a valuation of $100MM. Only now, multiples have compressed to 10x ARR. The entrepreneur does not like the dilution of $20MM in a flat round so there is a hard decision to make: raise less and drastically cut burn or raise what you need and suffer dilution. This situation can become a vicious cycle as sustaining growth is critical for future fundraising.

This scenario oversimplifies the fundraising process and certainly every situation is different. However, the point I want to make is simple. The best entrepreneurs and best companies will be just fine fundraising even with a tightening market. It’s the startups with challenging cap tables, cost structures or market timing issues that will really struggle to fundraise. Black Friday isn’t the canary in the coal mine – it should be the last wake up call for SaaS entrepreneurs to take a good look at their business and make absolutely certain that they have a contingency plan for 18 months of cash.

P.S. If you want to preserve cash without cutting costs, here are 5 cash flow hacks for SaaS startups.

We launched Silicon Heroes 12 days ago (http://bit.ly/siliconheroes) which means the first wave of marketing has run its course. The first wave was strong – email marketing to ~1,500 people, #1 on Product Hunt books and 3 great PR articles written about us. This first wave powered us all the way to over $40K in the first week. Of course, since this initial burst of marketing activity was done, I needed to find ways to sustain the crowdfunding contributions or else growth would flatten out (since I’ve exhausted all my friends). I tried out 3 marketing ideas this past week and here’s what I learned from them over the past few days.

#1 – Facebook Ads

Wow, I’ve learned a ton about Facebook ads in the last week. First, I learned that the new Facebook pixel does not work with Indiegogo. This only took me $100 with zero conversions to figure out. Luckily that was essentially free money (it’s great to have friends at Facebook). After some back and forth with Indiegogo’s support, I figured out that the old Facebook conversion pixel will still work (though it limits what you can track).

I then decided to limit Facebook ads to $20/day and I started running two types of campaigns. The first uses look alike targeting which looks at the 50 customers who have contributed to Silicon Heroes (that I did not already know) and then targets people with similar profiles. The second campaign just targets people between 18-50 who like tech (occupation or interest), comics (Marvel movies, comic books) and Girls Who Code or Code.org. My audience was about 5MM so I figured this was big enough. Here are the results:Just targeting based on demography and interests resulted in ~$13 CPM and 0 conversions. Ouch. Using the look alike audience with some targeting resulted in ~$18 CPM with 2 conversions (from 21 clicks). This ad unit basically broke even.

I spoke with a couple buddies who do a lot of Facebook ads. They were both surprised by how ineffective my ad campaigns were. They had a whole bunch of suggestions – splitting up my audiences into thin slices (between 100,000 and 200,000 person audiences) and then running a lot more campaigns (testing different combinations of creative, messaging and audiences). They also looked at my stats and quickly steered me away from mobile (which does not convert well on Indiegogo). Some great suggestions and I’ll try a whole new series of tests this week.

#2 – Content Marketing

I wanted to create unique content related to Silicon Heroes that was easy to produce and shareable. So I went on Upwork and hired a few artists to sketch famous entrepreneurs as superheroes. I then hired another person to use inspirational quotes from these entrepreneurs and make them into little shareable pieces of content for Twitter, Facebook, Instagram and Pinterest. Each piece of content costs me ~$7 and I’ve created about 50 (though I’ve only distributed 6 or 7 so far). See the image at the top of this post for an example.

My plan was to see if I could convince some of the famous entrepreneurs to tweet the sketches out. Wow…that did not work. Most entrepreneurs were flattered by the sketches but they so far have had zero interest in sharing the images. My guess is that they are worried about looking arrogant or vain for posting a picture of them as a superhero. No big deal. So I’ve just been pushing out some of the sketches from my own accounts and the Silicon Heroes accounts.

Unfortunately, I haven’t gotten much reach with the images and it’s also difficult to measure the impact for some of the channels. Twitter gets the least interaction (1-2 likes per image) whereas Instagram gets the most (30-50 likes per image). Unfortunately, Instagram doesn’t allow you to embed links. You can put them in the comment, but they are just text (not hyperlinks) and therefore not trackable. So far, I’ve received no Indiegogo contributions via these images on Twitter, 1 from Facebook and I don’t know the results from Instagram.

If there is a lesson learned here, it’s that I probably should have only made 5 or 10 entrepreneur sketches so I could have figured out early on that the CEOs weren’t comfortable sharing them. Without their boost, it’s been tough sledding on Twitter and I doubt I’ll see ROI. However, content marketing really tends to stack as you push out more content so hopefully I’ll see the same effect (and maybe ROI will come later).

#3 – Automated Twitter Marketing

I came up with this crazy idea to create a bot that would automatically respond to everyone who liked, replied or retweeted any of the content related to Silicon Heroes. For example, the article I wrote in Entrepreneur that described a little of the backstory for Silicon Heroes has been shared over 3,000 times. I could search for any time the link to that article had been shared and then I could automatically tweet the person who tweeted the article link with a message that says “Thanks for sharing. Did you know you can buy a copy of Silicon Heroes here…”. Great idea, but apparently this is difficult to execute without pissing off Twitter. I’m still working on it so if anyone has any ideas, I would greatly appreciate it.

Chasm Not Crossed

It was a busy week of experimentation and I definitely did not figure out how to keep growth going for the Indiegogo campaign. We added about $3K in contributions during the last week, but sadly almost all of these contributions came from people that were emailed during the 1st week (so they weren’t attributable to the new marketing tactics). I’m going to continue experimenting with Facebook ads this week – smaller target audiences with more focused messaging. I’m also going to see if I can’t crack this Twitter bot and I’ll start sending out some cold email campaigns to people that like tech and comics. I’ll report back next week.

Wow! Thank you to everyone who has supported shared and liked Silicon Heroes on Indiegogo. We crushed our goal of $31,415 (pi to the 4th digit) early on Day 2! We are now over $39,000! Amazing! We have now covered all of our fixed costs so the majority of every new contribution will be donated to Girls Who Code and Code.org!​I learned a lot from last week’s launch so I’ll dive right into sharing some of my learnings. Here’s a breakdown of contributions by source to help set the stage.

​Lesson #1: Email marketing works.

I sent out three email campaigns last week which generated a total of 170 contributions. I used SalesLoft to send every email from my own email address and so they could be highly personalized. The first was an email to 207 friends. These emails were each handwritten. As expected, conversion rate was very high as these 207 emails resulted in 109 contributions (53%). The second batch of emails was sent to 253 people and these were customized using 5 different variables and resulted in 45 contributions (18%). Lastly, I sent out emails to 1219 people that were not very customized and these emails resulted in 16 contributions (1.3%). Obviously, how well I knew the person dictated which email segment they fell into and this had more impact on conversion than any personalization.

I learned one really key lesson with email marketing. Send your emails in small batches and A/B test the messaging. I sent the first 207 as one big batch. I found out very quickly (from my friends) that I had made a small error – my click to tweet link was too long by one character. So, for the next set of emails, I broke them into smaller groups and sent them an hour apart. Sending the smaller batches enabled me to see people’s questions and feedback and then tweak little things in the messaging. I would up sending out 4 pretty different messages. By the time I finished sending the larger blast of 1219 emails, I had honed in on the messaging that worked best (based on click data) and fixed a couple of errors.

Lesson #2: No one in the press wants to cover your story until you are already successful.

I had sent out ~30 emails to bloggers and reporters tipping them off to the Silicon Heroes launch. I received only one nice email back declining. I was really fortunate to get an introduction from a friend to Entrepreneur and they were kind enough to run a byline piece on our launch day. That was the only PR piece covering the story at launch. I wound up emailing a few of the journalists on my initial list as we approached our goal at the end of Day 1 just to let them know we had launched, we were approaching our goal and that we were #1 on Product Hunt for books. Amazingly, Huffington Post wrote a nice piece and TechCrunch covered us the next day.

The lesson learned with PR is that no one wants to cover your story until it is successful. So it’s better to focus your energy on marketing channels you can control and then use PR as a boost. Also, PR is not a one shot strategy. With an Indiegogo project, you have 30 days and that’s plenty of time to leverage successes into stories. I am extremely grateful to the writers and editors that generously shared the Silicon Heroes story. The direct data does not quite do them justice – only 7 total purchases came directly from links in their stories. However, these 3 stories generated over 3,000 shares on social media. That’s pretty incredible, and leads me to my next lesson.

Lesson #3: Getting Likes is Easy. Getting Conversions is hard.

Generating social buzz of a project like Silicon Heroes is pretty easy – it’s a unique project and it’s for a great cause. Just look at the Entrepreneur article I mentioned earlier – that piece has had over 2,300 social shares by itself. The lesson there is to write content that provides real meaning to your audience (the “give to get” approach). However, as popular as that article was, it only generated 3 direct contributions on Indiegogo. Yikes!

Let’s look at the impact of social shares from the direct Indiegogo funnel. The Indiegogo project has been shared on social 878 times. Those shares have led to 753 visits and 18 contributions (2.4%). This was shocking to me – the campaign was visited less than 1 time per social media post!

The lesson for me here is that in order to hit my goal, I’m going to need a MUCH bigger top of funnel. This is why I’m going to start Facebook ads this week. (That and Facebook has led to more contributions than Twitter).

Lesson #4: People like comic books more than customer service. At least on Product Hunt!

The Product Hunt community is awesome. Hiten Shah agreed to post Silicon Heroes on Product Hunt just after midnight. Right after he posted, Intercom (a company with thousands of raving customers) posted their book on customer service. I was immediately nervous but also competitive. I went to bed around 2AM and we were neck and neck with Intercom. I woke back up at 8AM to start my email marketing and saw that we had fallen behind. I emailed a few friends to see if I could rally some support but I wasn’t going to make it my main focus (since I had so much to do on launch day). I was so humbled that the Product Hunt community got behind the project. I looked at the 125 upvotes and I only know about 20 of the people personally so a lot of the upvoting was organic. It really helped that Product Hunt featured us on the top section of their main page for most of the day and Ryan Hoover even tweeted about us. It was so much fun to watch throughout the day!

The lesson I learned is that staying on top of the Product Hunt list requires strong influencers in Europe (before the US wakes up) and then a few champions in the US. I was lucky that Harry Stebbings championed Silicon Heroes in Europe and then Hiten Shah and Ryan Hoover tweeted about us during US daytime. I think that really did it for us. In the end, Product Hunt led to 10 direct contributions.

Speaking of customer service: I just want to quickly thank Marc Hofstatter at Indiegogo for his amazing support of Silicon Heroes. I’ve had a little technical trouble over the past couple days and Marc has responded quickly and routed me to the right support people who could solve the issues. Thanks Marc!

Lesson #5: Thank goodness for amazing friends, colleagues and the awesome tech community.​This brings me to my last lesson of the launch. I was overwhelmed by the support of my friends, colleagues and the tech community at large. People I know personally have contributed 80% of the contributions so far (which is par for the course for crowdfunded projects at this stage). The tech community has really helped spread the word and lots of people have sent in supportive emails and offered to help. Thanks to Alexis Cox, Tommy Leep, Kumar Thangudic, Aditya Kashap, Jason Lemkin, Hiten Shah and many others that have spent time with me, advised me and lent a hand.

I’m really excited for this week. I’m going to be launching paid marketing (via Facebook ads) and trying out a few growth hacker techniques on social media. Stay tuned!

I feel like an entire month has gone by since my first post last week. I put in a full week of work at Emergence including flying to Seattle for a diligence trip while continuing to make great progress on Silicon Heroes (T-Minus 10 days to the crowdfunding launch). Of course, I got so little sleep that I came down with a nasty sore throat and fever Sunday. Guess the days of being invincible are behind me.

Last week’s post was inspired by my struggles to execute and the lessons learned from that struggle. This week is more about lessons learned from executing on strengths. So here are the top 5 lessons learned from last week:

Lesson #1: Skip what is easy and focus on what is impactful.

For the past few weeks, I had been creating a list of to do’s in Trello and then ticking them off. I always seemed to get through the majority of the items but a couple of really tough ones would always be there at the end and get punted to the next week. I would always talk myself out of doing the hardest tasks – I would tell myself, “oh that’ll be easier when X is done”. Well, when I really looked at the tasks I wasn’t finishing, they were definitely the hardest tasks but also the ones that had the most leverage for impact.

Most of these difficult tasks required reaching out to someone important – an influencer, a journalist or someone that could potentially help. In all of these cases, I didn’t know the person so that is what made the task hard. That and the very real personal rejection I would feel when they ignored my emails.

So last week I just decided to start leveraging my relationships to reach the people that can really move the needle for Silicon Heroes. Yes, it was a lot of work and most of those emails, calls and meetings did not amount to anything. But, the few success cases (thank goodness I had a couple!) will move the needle much more than taking the easy actions of pushing things out into social media or trying to figure out other hacks for marketing.

Lesson #2: Don’t rely on email, get out and talk to people.

Inside sales teams fall into this trap too. Email is easy. Picking up the phone or meeting face to face is hard. But you know what? When I explain Silicon Heroes to someone in person, they almost always express an interest to help. I think it comes down to two reasons. One, the story becomes interactive and I can focus the conversation on what matters to the other person. Email is one-way communication and the message might be great but not relevant for the receiver. Two, people are busy and emails are easy to delete. It’s hard to ignore a person in a conversation.

I really struggled with the Kickstarter vs. Indiegogo decision. It sucked a lot of mental cycles and really bogged me down for a couple of days. I have a CEO in my portfolio who has been struggling with a really tough strategic decision for his business and I saw the toll that decision was taking on him. He ultimately made his decision this week and I could see the weight lift right off his shoulders. His courage to make a decision where there is no clear right answer and move forward with conviction helped me in my own much smaller dilemma. These types of emotional decisions can lead to a lot of second guessing and flip flopping. But you just have to make them and move on.

Lesson #4: Time pressure will eventually force you to narrow your focus so stop expanding the scope of possibilities.

I’m a dreamer. I’m at my best when I get carried away with the possibilities of what could be. I think that’s why I like being a VC. However, that character trait is not great when it comes down to crunch time execution. For the past month, I felt like my to do list was growing faster with new ideas than I was able to knock tasks out. A few days ago I just said no more. I triaged my Trello board and discarded everything but the essentials. It felt great and now I know I’m working on what is necessary.

Lesson #5: Be willing to change your plan on a daily basis.

Every day I get some new piece of information that causes me to change course. Maybe it is a person I just met who can help in a way I had not planned. Maybe it is an external vendor that isn’t cooperating. Or maybe it is a marketing strategy that is not performing. You just have to have the mental agility to process new information and tack quickly. I used to be bothered by the sunk costs – hey, I put a lot of energy into X. And now I’m just going to abandon it for Y. Actually, yes, when new information comes up, burn the boats and start moving in the new direction. Of course, it’s easy for me to do this because it’s just me most of the time.

So there you have it folks. Hope you all enjoyed another week of a VC trying to moonlight as an entrepreneur. Launch day is 10 days away so this next week is going to be a flurry of activity. Thank goodness for cold meds.

I’m a venture capital investor attempting to moonlight on nights and weekends as an entrepreneur. It has been a challenging, humbling, rollercoaster experience and I wanted to share the experience with others. If for no other reason then so all of the entrepreneurs I work with can have a good laugh at my expense. You’re welcome.

I designed and built my website thinking it would be really simple. People would land on the front page, read the blurb about what I was doing and then click on the big call to action button. After a couple days, I looked at the analytics and found that people did just about everything else other than click on the call to action button. They went to the gallery to look at pictures, they went to the about page to read about the project, they clicked to the social media accounts but mostly they bounced. I was completely mystified because I was emailing my close friends and sending them to the website with the specific goal of clicking through on a specific call to action. I then watched a few people go through the website flow on their phones and I was amazed that they couldn’t figure out what I was asking them to do. Turns out there were a lot of things obfuscating the call to action (it was below the fold, the button blended in with the background, etc.). So I completely overhauled the website and eliminated every single link on the front page except the call to action (which I made appear in 4 different places). Conversion rate increased significantly (it’s amazing that people will click different links to take the same action) and bounce rate declined. I revised the site again to include some of the other information, but kept the front page very focused on one call to action. If you feel like helping me with constructive comments, the website is www.siliconheroes.com).

Lesson #2: Social marketing is unnecessarily hard. I now have a lot more respect for social media marketers after this past week.

My project involves crowdfunding a graphic novel. As a result, I’ve got a lot of awesome images that I can share on social media to hopefully increase awareness of the project. Great, I should just be able to select images and then send them out via Buffer, right? Wrong. Every social media platform requires a different size image for EVERYTHING – profile pictures, headers and posts. Why hasn’t someone solved this?

Instagram doesn’t allow posting via API…so you have to post from your mobile phone (instead of Buffer or Hootsuite). I suppose this makes the Instagram user experience better, but marketers must hate this…

Driving true engagement via social is seemingly impossible if you aren’t a good looking person taking selfies or have puppies/kittens/food in your picture. Sure, people will like your posts, but they won’t take the action you want them to take (clicking links, sharing or following). My initial Facebook post announcing my project received over 120 likes in the first 12 hours but only one person actually completed the call to action (thanks Jung!). If anyone has advice on how to use social media to drive a crowdfunding project, I’d love to chat.

Lesson #3: PR is even harder.

This was probably the most humbling. I assumed (incorrectly) that a graphic novel that positions entrepreneurs as role models for kids and promotes diversity in tech would definitely attract attention from bloggers and journalists. I just needed to find the right ones, introduce my project and their coverage would launch my crowdfunding project to success. So, I did exactly what a few PR experts told me to do – I used Google image search to find out which journalists and bloggers had written about successful crowdfunding projects. I then reached out to them with a short, personalized email that introduced my project and asked if they would cover the launch. Twenty emails and one week later and I’m still waiting for the first reply.

I sat down with a friend of mine that owns a big web publication. He actually pulled out his phone and showed me the “tips@” email inbox for his website. It was full of Kickstarter projects and requests for PR coverage. I realized at that moment that there is no way I can rely on any press coverage. Now I’m staring at a pretty daunting marketing challenge.

Lesson #4: Don’t rely on a single platform.

I give entrepreneurs this advice all the time. Don’t rely on a single platform because then you are beholden to them. So why did I not see this coming? My crowdfunding project has a charity angle – I plan on crowdfunding my graphic novel and then donating all of the profits (beyond the costs of producing the book) to Girls Who Code and Code.org. Imagine my shock and dismay when I tried to submit the project to Kickstarter and found out that Kickstarter does not accept projects where any of the funds are donated to charity. Whiskey Tango Foxtrot. I had already shot my video (where I mention the words Kickstarter). All of my creative assets say Kickstarter. My silly ThunderClap says Kickstarter (and I had over 100 people already signed up to Tweet out a message that says Kickstarter). I had already told all of my friends and supporters that I was doing a Kickstarter…and just like that…I wasn’t. Of course, none of this is Kickstarter’s fault. They are pretty clear on their website, I just made incorrect assumptions that my project was going to be okay (though seriously, if you are delivering a great product to the community, why should Kickstarter care what you do with the profits?). As a result of my reliance on a single platform, I spent most of Sunday changing my website, marketing materials and video to now show an Indiegogo campaign. Huge waste of time, lots of lessons learned.

Lesson #5: Every setback is an opportunity.

All of the above 4 lessons learned involve setbacks. Each setback comes with an accompanying emotional hit. The emotional hits are probably worse than the actual setbacks. The big lesson I tried to take away from this past week (and the Kickstarter fail in particular) is that every setback is an opportunity. Struggling with the website forced me to get much smarter about analytics and link tracking. That is going to prove very useful with marketing. Struggling with social media marketing forced me to spend a lot of time sending emails. My response rate with emails has been fantastic – 80%+ on personalized emails and 30%+ on generic emails. I think the response has been so strong because most of my friends are entrepreneurs or techies and they know how hard it is to launch something. Lastly, struggling with PR is forcing me to think about ways to get dirty with some growth marketing strategies.

​So there you have it folks. Hope you all enjoyed the struggles of a VC trying to moonlight as an entrepreneur. Trust me, I’m better at my day job. The Indiegogo launch date for Silicon Heroes is 16 days away so I’m sure this week is going to have even more setbacks, struggles and challenges. Thank goodness I have a supportive wife and really good friends.

Over the past three years, the Emergence Capital team has closely monitored the growing ecosystem of mobile enterprise applications. We have been fortunate to learn from our investments in a few of the early leaders across this landscape, including Box (collaboration), Doximity (digital health), ServiceMax (field service) and Cotap (enterprise mobile messaging). As we continue to watch the enterprise mobile app landscape develop, we have begun to formulate a thesis on the evolving ecosystem of SDKs (software development kits), APIs (application programming interface) and development platforms that mobile entrepreneurs are utilizing to accelerate the development, marketing and monetization of their mobile apps. Collectively, we are referring to these companies as the Mobile App Enablers, and we are starting to see some early trends. The landscape and industry trends we are sharing today are based on conversations with over 200 mobile app entrepreneurs and business leaders. We segmented the landscape of enabling technologies into three main layers:

Technologies that accelerate the development of mobile apps

The API layer that mobile apps utilize to connect with cloud-based services

The sales and marketing technology layer which drives user acquisition, engagement and monetization

Within the landscape’s three main segments, we have identified the following key insights:Incumbent Web App Technologies Are Not the Leaders in the Mobile World Mobile app development is fundamentally different from web app development – from the programming languages to the hardware resources available to run an app and ultimately to the app store distribution model. As a result, web app technology incumbents do not have an advantage in most categories. For example, mobile specific development platforms such as Parse have emerged to solve very specific mobile app development pain points related to mobile devices and operating systems. We also found that the proliferation of mobile hardware created a new problem that could only be solved by mobile focused app testing startups like Crittercism. Lastly, with app stores serving as the gateway for user acquisition and monetization, we found that startups like AppAnnie (app store data) and ZenMarketing (attribution) started to solve very specific needs that their web counterparts like comScore and Convertro were not solving. The one major exception to this trend is that the API leaders which power the web also power mobile apps – Twilio for telephony, Stripe for payments and SendGrid for email. This makes perfect sense as developers are familiar with them and there is no real advantage for a mobile specific API technology in these general categories. There are a number of web incumbents who aggressively evolved their products to target mobile – Optimizely,Zendesk and Google Analytics are three examples. These companies should be lauded for their agility but they also face stiff competition from mobile specific startups and we will watch how their markets unfold.Mobile SDKs Need to Fight for Mindshare Due to app store approval processes, mobile app development cycles are slower than their web app counterparts. Also, the capabilities and storage of mobile devices are limited. As a result, mobile app developers are simply not willing to integrate an infinite number of SDKs. This has led mobile enabling technologies to fight for mindshare at the earliest stages of app development. Once a mobile app has integrated one analytics SDK, the bar for ripping it out and replacing it with a competitor is very high. We have observed the most successful SDKs like Mixpanel have targeted developers early with freemium offerings. Consequently, we have observed that getting your SDK distributed widely with freemium has enabled early leaders like Flurry to evolve their product offerings into other areas.Point Solutions Are Evolving into Suites Enabling technologies focused on driving engagement face stiff competition as illustrated by the highest density of logos on the landscape. As a result of this competition, we have seen this area evolve tremendously over the last six to twelve months. Companies like Leanplum and Swrve have moved from A/B testing to include customer segmentation and messaging. Mixpanel has evolved from analytics to include marketing automation features. Kahuna and Appboy have grown from just mobile marketing automation to email marketing and have displaced web incumbents like ExactTarget in accounts. This evolution is partially driven by market size and competition but also by the desire of customers to start paring down the number of vendors they integrate into their apps.The Fight on the Horizon As we look ahead, we know the number of mobile enterprise apps will continue to grow and this will benefit the ecosystem of enabling technologies. However, as enabling technologies mature, competition will increase – both from other startups and from the web incumbents who rapidly attempt to catch up. We anticipate consolidation within the major categories on our landscape, particularly as the early leaders broaden their capabilities into product suites.We realize that we have likely missed some great companies, so please let us know if we missed you. Also, if you are thinking about other frameworks to categorize mobile enabling technologies, we would welcome sharing ideas.

In October, I published this article in TechCrunch on how to tell if your SaaS startup was burning money too fast. That blog post spawned a number of great conversations with entrepreneurs on how to measure and control cash burn. The ugly truth is that startup CEOs have to walk a fine line with cash burn: spend too little and your startup may not grow fast enough to achieve escape velocity; spend too much and your startup might run out of life. “Why don’t I just spend money to experiment and then dial back when it isn’t efficient?” – This line of thinking is perfectly logical but the simple truth is that it just isn’t very easy to cut costs without hurting employee morale, disrupting culture and killing your revenue momentum. However, given the SaaS business model, you can apply a little financial hacking to conserve cash without cutting spend. Here are my top 5 SaaS financial hacks:

1. Focus on annual contracts and collect the cash up front.

Sales reps are naturally inclined to go for the monthly sale – it seems easier because it is a smaller commitment. That’s true, but it kills your cash flow in a couple ways: one, monthly contracts churn at a higher rate than annual; and two, monthly contracts require a long time to pay back the initial sales and marketing cost to acquire that customer. For example, let’s say your gross profit pays back customer acquisition cost in 9 months. That means you are cash flow negative on that customer for the first 9 months and you will take a permanent loss if that customer churns in that time period. Now, let’s assume you only sign annual contracts with payment up front. That same customer is immediately cash flow positive and you can never take a permanent loss because their first opportunity to churn is at the 12 month mark.

It sounds simple because it is. Incentivize your sales team to sell annual contracts and incentivize your customers through small discounts to pay upfront.

2. Implement faster and thus invoice faster and upsell faster.

“Awesome, my sales team just sold an annual contract, but where is the cash?” For most enterprise customers, you do not invoice your customer until your application is implemented and live. For customers that require integrations, training and set up time, this presents a significant delay. Improve your cash flow by compressing the time from signed contract to live deployment. Plus, you’ll get an added bonus – the faster a new customer goes live, the faster your customer success team can upsell additional features and more seats.

3. Match sales commissions to cash flow.

“Wait a second! While I’m waiting for implementation to finish, I’ve already paid out the sales commission so my cash flow is even more negative.” That’s right! That’s why forward thinking sales leaders find ways to match the timing of sales commissions to the cash flows of new contracts. There are many different ways to do this without causing too much disruption. The key is to make sure reps see the new system as fair and transparent.

I am constantly amazed by how quickly startups pay their bills. It’s time to start thinking like a big company – maximize your float and set up your bills to be automatically paid close to their due date. More importantly, don’t let your customers borrow from you interest free for 90 days. Test the best way to improve the speed with which your customers pay you – you can discount for early payment, you can send invoices early and you can even just try using personal charm on the accountants. If a company with $6MM in revenue can bring its accounts receivable days outstanding from 90 days to 60 days, the net gain is $500K in cash.

5. Shift capital expenses to operating expenses.

Capital expenses for startups are items like office leases, furniture and computer equipment. For example, office leases may require hefty deposits or payment upfront and furniture is often purchased in advance of new hires. You can save cash by shifting these fixed expenses into monthly rentals.

SaaS startups already face an uphill battle given the business model of initial customer acquisition costs which are paid back over time by subscription revenue. Using these 5 SaaS financial hacks can conserve cash and extend your runway without reducing spend in your product or sales organizations.

Mike Cardamone and I are planning another exclusive San Francisco Enterprise Tech Meetup. Our next event is focused on Enterprise UX/Design and will take place on Tuesday 11/11 in San Francisco. Please email me if you would like an invitation! Details on our speakers below:

Questions about cash burn have blazed through Twitter like wildfire. Entrepreneurs are asking us: How do I know if I am burning money too fast? Unfortunately, there is no one-size-fits-all answer for an entrepreneur on what level of burn is appropriate for their startup. However, every entrepreneur should consistently assess their runway and revise spending against their strategic goals.

I have designed this short quiz to help enterprise cloud startups analyze their spending levels. It’s critical to monitor your company’s burn rate so you can make those quick adjustments to increase your chances of success.

Select the answers below that best describe your company.

1. Market Dynamics: Does your market have network effects?

a) Each sale is independent. If we sell to one customer it does not impact the likelihood of sale to another customer.

b) Economies of scale are important in our market and we believe that only three or four solutions will achieve scale. Early movers have a small advantage.

c) Every new customer increases the value of our product and becomes a source of new potential customers. Early movers have a major advantage.

2. Competitive Intensity: Who are your major competitors?

a) We are in a dogfight with a number of well-funded startups and large incumbents. Our sales team consistently sees competition for new customers, and we win as often as we lose.

b) We are competing with one or two large, entrenched companies. Our sales organization sees competition more often than not, but we win most of the time.

c) We are carving up a green-field opportunity. We sometimes face competition for new business but it is usually from consultants or internal teams building custom solutions.

3. Customer Retention: What is our churn?

a) We estimate that we turnover 1 out of every 4 customers each year. We haven’t really started tracking churn yet, but I would guess that our net annual MRR churn is ~20 percent.

b) We track churn and we know we retain 85-90 percent of our customers annually. We have increased our average sales price by 10 percent over last year. We also have a customer success team that upsells our most engaged customers, so our net annual MRR churn is only 10 percent.

c) We track each cohort of customers on a monthly basis and our customer success team excels at deploying new customers quickly and getting them engaged. We have negative MRR churn, and each monthly cohort continues to grow over time.

4. Sales and Marketing Efficiency: What is the return on every dollar of sales and marketing spend?

a) We spend $1 – $1.5 in sales and marketing for every dollar of total bookings (new and renewal). We do not worry about gross margins because we know they will increase with scale. We collect some contracts monthly, quarterly and annually.

b) We achieve a 1:1 ratio of sales and marketing spend to new annual contract value (ACV) bookings. We analyze customer acquisition costs (CAC) by channel, and we tend to payback CAC with gross profit in 9 – 12 months. We try to get cash payment up front for annual contracts.

c) We consistently receive $2+ dollars of new ACV bookings for every dollar of sales and marketing spend. We optimize CAC by allocating marginal spend to the highest performing channels. Gross profit pays back CAC in less than 6 months consistently. Our customer success team is deploying signed contracts quickly, and we always collect cash up front for our contracts.

5. Fundraising Capability: Who is in your investor syndicate and how easily can you add new sources of capital if you need to fundraise quickly?

a) We have a group of angel investors or constrained institutional investors. It feels too early to pursue debt. We are heads down focused on sales and product right now and we will think about the next fundraising when we need to raise more money.

b) We have one institutional lead investor with dry powder, and we think we can secure a small debt facility. Our investor can introduce us to venture firms so we can start a fundraising process pretty quickly if we need to do that.

c) We have two or more institutional venture investors and we have a small debt facility with our bank that we can draw down if we need it. We keep a steady dialog going with investors that we would like to involve in future financings so we could start a process tomorrow if desired.

What’s your score?

Give yourself one point for each “A” answer, three points for each “B” answer, and five points for each “C” answer.

0-10 points: Pull the ripcord. You need to evaluate your spending immediately and consider pulling back drastically. You may be too early in a nascent market, and it would be wise to conserve capital until the market develops. You may be facing too many competitors which is forcing everyone to spend inefficiently. You may want to scale back sales and marketing while you pivot your product to find a more attractive competitive position. Lastly, you may not be able to raise additional equity if the current venture environment sours. You should look to secure a debt facility and reduce burn to give your team the longest possible runway to succeed.

11-18 points: Pump the brakes. You are not in trouble yet, but you should quickly assess your situation. If you are targeting a large enough market, then you may be justified in continuing to spend on sales and marketing even if you are not that capital efficient. However, you should drill down and figure out why you are not efficient.

Do you have a churn problem? Do you face too much competition? Do you have too many sales reps? Not enough good sales reps? Are you marketing in the right channels? Is your pricing right? Is your product truly solving a customer pain point? Once you understand the drivers of your current business, you can reduce spend in the areas that are not efficient.

For example, if you do not quite have product-market fit, then you can reduce sales. If you do not have sales functioning perfectly, you can reduce marketing spend. Lastly, you should consider raising a top up round to give yourself 18 months of runway while the venture fundraising window is open or securing a debt facility to give yourself an extra 6-9 months of cushion.

19-25 points: Burn baby burn. Your sales and marketing engine is firing on all cylinders and you have proven you know how to engage customers and keep them renewing. Now is the time to pour fuel on the fire to attack your market while there is little competition. The viral effects are strong enough to justify the investment now, and investors will reward you for your efficient growth. Remember to keep monitoring your SaaS metrics so you can adjust your spend if your business slows down. Lastly, you should consider raising additional growth equity early while the venture window is wide open and valuations are aggressive.

Editor’s Note: Joe Floyd is a venture investor at Emergence Capital. Emergence focuses on enterprise cloud applications and has invested in market leaders including Yammer, Box, Veeva Systems and Salesforce.

Mike Cardamone and I are planning another exclusive San Francisco Enterprise Tech Meetup. Our next event is focused on Enterprise Growth Hackers and will take place on 9/9 in San Francisco. Please email me if you would like an invitation!

We've got a great lineup of speakers:

Sean Ellis, CEO of Qualaroo. Sean introduced the concept of growth hacking and discussed how the principles of growth hacking for consumer companies could be applied to B2B demand generation and product development.

Matt Malden, Chief Product Officer at Docusign. Matt shared how Docusign built virality into the Docusign product and how they test, optimize and measure their progress.

Lincoln Murphy, Customer Success Evangelist at Gainsight. Lincoln explained best practices around B2B demand generation and how to test and leverage different marketing channels to cost effectively acquire customers.

Talented engineers are the lifeblood of software startups. Unfortunately for Silicon Valley, talented engineers are in short supply and the competition for their services is as fierce as ever. Given this market dynamic, many of our portfolio companies have made the decision to open engineering offices outside of the US. While initially skeptical, I have come to appreciate the competitive advantage of having access to the global talent pool. In order to help other startups that are thinking of hiring globally, I sat down with a handful of CEOs to learn more about their experiences. Below is a summary of benefits and best practices. Benefits

Scale Faster - Not surprisingly, cost is a major benefit when hiring engineering talent outside of the US. However, after you factor in overhead, management, and lost efficiencies due to distance, the cost savings is often not worth the headache, particularly when your team is small. The critical advantage to hiring global talent is that you can scale two to three times faster. If you tap into a good vein of engineers in a particular region, you might be able to hire 10-20 engineers in a month. It’s a rare start-up in Silicon Valley that can hire quality talent at that speed.

Better Retention - CEOs frequently mentioned the reduced rate of turnover with global engineering teams. They are not constantly hounded by recruiters on LinkedIn…yet.

Productivity - A number of CEOs pointed out that remote engineers are actually more productive than Silicon Valley engineers. The reasons cited were fewer distractions and certain cultural work patterns.

Best PracticesSelecting a Location - So where do you set up shop? As any good real estate agent can tell you, location is everything. Every CEO gave the exact same advice: choose a location where you already know someone that you absolutely trust. You can find talented engineers almost anywhere, but it is critical to have the first person on the ground be someone you trust and someone that can recruit the best talent in that location. Here are the top three location specific advantages cited by CEOs:

Tax credits – Certain governments subsidize startups in order to make their location more attractive. For example, Canada has the very generous SR&ED tax credit program which allows startups to earn up to 35% of qualified R&D expenditures.

24 hour support and monitoring – India, China and Southeast Asia are popular locations for many reasons, but in particular, CEOs mention how advantageous it is to have opposite time zones which allow for 24 hour support and IT monitoring.

Access to key markets – Western Europe and Ireland in particular are great first global offices because they create an easy foothold to launch a global sales team.

Closing the Distance - After hiring people you trust, the next most critical factor in determining your success with remote technical talent is how you implement work flows and processes to integrate your organization. CEOs point to a number of collaboration tools including Zoom, Yammer, Skype, Hall and Hipchat. One popular setup uses Slack as the platform which ties into a variety of systems like JIRA for project management, Github for code, Heroku for deployment and Zendesk for customer service. Slack can be set up to receive automated notifications from these development tools. Using Slack as the central information repository is a slick way to keep everyone informed and up to date across geographies and time zones. Every successful startup has at least one unfair competitive advantage and leveraging the global nature of technical talent provides a few: scale faster than the competition, retain your talent and reap the benefits of global locations. With today’s modern collaboration tools, global talent is more accessible than ever and our startups are taking advantage.

Over the past 12 months, I have studied the cloud security industry and I wanted to share my framework for segmenting startups. Please email me if you want to trade notes or if you want to add your company to the landscape.

Emergence’s singular focus on enterprise applications gives us unique insights across the landscape of enterprise cloud companies and we love sharing those insights with our executive teams. We recently gathered our portfolio sales and business development leaders for our annual revenue summit. As part of the summit, we gathered data across the attendees and we wanted to share the top 10 insights.

Insight #1: Companies that sell larger average contracts tend to have slower sales productivity ramps. When sales leaders begin hiring reps for larger contracts, they need to plan for that ramp time in their forecasts.

Insight #2: Commissions for new ACV vary widely by size of deal. In our experience, there is more of a direct relationship to the overall quotas for reps and the commission percentages.

Insight #3: Most sales leaders offer lower commissions on renewal ACV and nearly 1/3 offered no quota on renewals. We find that most of our revenue leaders have bifurcate quotas for new business to sales and renewals to customer success.

Insight #4: Marketing drives the majority of sales for smaller ACV deals. This can be interpreted in two ways: one, companies with smaller average contracts need to invest more heavily in marketing to be efficient; and two, every company needs better attribution to figure out the impact marketing dollars are having on end customer sell through. Insight #5: 70% of sales leaders surveyed hired 50% or more of their reps using in-house resources. Scaling sales reps is not easy, particularly in the growth stages. The best companies build in-house recruiting organizations and tap their employees for referrals.Bonus Insight: Here are the most commonly used sales enablement tools among our revenue leaders.

Thank you to all of our portfolio executives and guests for sharing your knowledge and energy at the 2014 Emergence Revenue Summit. See you next year!

Mike Cardamone and I are planning another SFETM event. Please join us on May 28th at 6:30PM at RocketSpace in San Francisco for a meetup discussing best practices for partnering with and building on enterprise platforms.

Lured by the success of companies such as Workday and Marketo, consumer internet and mobile entrepreneurs have flooded into enterprise startups.

This new wave of entrepreneurs has leveraged their consumer DNA to reimagine the way enterprise users consume software. They have injected beautiful design and streamlined user experiences, which make their software seem both fresh and familiar to users in a business setting. However, the best product does not always triumph in the land of long sales cycles, custom integrations, and the dreaded procurement officer.

In order to win in enterprise markets, startups need to build world-class marketing, sales and services organizations. Today’s product-centric entrepreneurs should follow in the footsteps of market leaders such as Box, Yammer and Veeva Systems and reevaluate these three common startup myths from the consumer internet:

Myth #1: If our product is great, then word of mouth virality and organic search will generate the web traffic necessary to drive growth.

Organic search and word of mouth virality are great for acquiring individual users, but they are not sufficient for grabbing enterprise decision makers. For example, Box has a freemium product with virality built-in through file sharing. This customer acquisition channel can generate enough paid conversions to sustain meaningful growth at the consumer and small to medium business levels.

However, when it comes to generating enterprise leads, demand generation techniques are absolutely necessary to feed an enterprise sales team. Box uses a combination of content/influencer marketing, paid search/display advertising, conferences and channel partners to target and build a pipeline of decision makers.

Myth #2: If our product is easy to try and customers can sign up with a credit card, then I do not need expensive sales reps to sell it.

Self-service sales models work very well in situations with single decision makers and low price points. However, self-service models break down at the enterprise level. Yammer built a great self-service model where SMBs or managers within an enterprise could sign up a team with a credit card. Yet when it came to enterprise-wide sales, Yammer discovered that inside and direct sales reps were necessary to manage and win enterprise contracts. In particular, sales reps are able to sell to multiple decision makers within an organization, push contracts through procurement, compete in RFPs and negotiate service level agreements and integrations.

Myth #3: If our product is designed so that it is intuitive and easy to use, then I will not need professional services.

Low or no-touch service models are critical for consumer startups given the scale of their customer base. However, customer success and professional services organizations are critical for success with enterprise customers. Veeva Systems has built a world-class services organization that provides three key strategic advantages:

Professional services that ensure customer happiness lead to low churn and positive references.

The services team receives customer feedback, which is incorporated into the product.

Professional services controls the integration experience and timeline, which is critical for driving upsells. Most enterprises start with small pilots, and you cannot upsell a pilot until it is deployed and successful.

When consumer startups scale, they require capital to expand the product and support the user base. Conversely, when enterprise startups grow, they require capital to scale sales, marketing and services.

When an enterprise startup is seeking a Series A investment, veteran investors will not expect that the CEO has definitively cracked the code on scalable demand generation, predictable sales and customer success. However, we absolutely want to see that startups have experimented to test hypotheses in each of these categories. Designing experiments, tracking metrics and iterating quickly are critical proof points that allow entrepreneurs to earn trust with investors because it demonstrates that they will spend capital efficiently.

Consumerization of IT has led to a renaissance of enterprise software. Now that entrepreneurs are designing delightful enterprise products, they cannot ignore the need to build the sales, marketing and services engines necessary to deploy that software into the hands of enterprise users.

As more enterprise solutions are coming to market, VCs will be even more discerning as they decide where to invest, so it is important for entrepreneurs to not fall prey to the myths of the consumer internet.

Mike Cardamone and I are organizing a new meetup focused on enterprise technology ecosystem. Our first joint event will explore the evolution of mobile apps from the consumer world to the enterprise and we will discuss key trends in the ecosystem.

We have a great panel of experts lined up:

Jim Patterson, CEO of Cotap and former Chief Product Officer at Yammer. Cotap is an enterprise mobile messaging application for iOS and Android.

Adam Marchick, CEO of Kahuna. Kahuna is a mobile engagement engine for apps.

Martin Destagnol, CEO/Founder of Folders (acquired by Box) and now Head of Mobile Engineering at Box.

According to a Sarah Lacy article from earlier this year, Andreessen Horowitz almost had an iron clad rule to never invest in verticals. The main reason to avoid vertical investments was because they had small addressable markets and thus it was difficult to build a big business. Thankfully, Emergence ignored traditional thinking and bet early on Veeva Systems (NYSE: VEEV). What did we see that made us think it was a big enough market? We had a core thesis that SaaS made verticals more attractive. SaaS products can evolve faster than on-prem deployments and thus, we believed vertical SaaS applications could achieve high levels of customer satisfaction by combining vertical market expertise with rapid, focused iteration. This customer satisfaction would enable vertical SaaS vendors to perfect a use case and then sell additional products and services to their happy customer base.

Let’s look at RealPage (NYSE: RP) as an example. RealPage sells web-based property management solutions to the multifamily real estate industry. Using the 2009 US Census, I used a bottoms-up approach to calculate total available market size for RealPage with their initial product at ~$780MM. By 2008, RealPage had expanded its product offering and increased ASPs almost doubling their market size to ~$1.7B. Lastly, at the IPO, analysts projected future growth in product offerings which tripled market size to ~$5B.

30-35% multiple expansion for SaaS Stars has nearly the entire group trading at unrealistic valuations - Workday, Tableau and Splunk have been the biggest beneficiaries; Palo Alto Networks a noticeable laggard

Some of the SaaS and Steady names starting to approach unrealistic multiples - Concur in particular

9/20/13 - FireEye IPO; FireEye added to SaaS stars due to its insane multiple of 36.4x current year revenue

As the resident data guru at Emergence, I receive weekly requests for help from portfolio companies and startup CEOs. What metrics should I be tracking? What metrics should I display in my board decks? How should I benchmark myself versus other SaaS companies? Unfortunately, there is no one size fits all answer as each company should have unique KPIs they target and track.

Establish Company Objectives and Measurable Targets

My personal philosophy is to break company objectives into measurable targets and then show the plan versus results over time. Objectives and targets should always be broken down into their most relevant components. For example, let's say you want to have a sales goal. You should not have your sales goal be a total bookings target. In a SaaS business, renewals make up an increasing % of bookings over time and thus you can miss your new bookings target by 50% (a bad miss) but only miss your total bookings by 10% (if your renewals make up 80% of total bookings). In this particular case, You should establish and track separate targets for new bookings and renewal bookings. Further, you probably want to track ACV (annual contract value) bookings as opposed to total new bookings (as multi-year contracts could enable you to hit targets but would not translate into revenue that year).

Cohorts!

My second most important tip is to break data into relevant cohorts. The most common groupings for cohorts are customer type (industry, size, location), date of acquisition (monthly, quarterly) or method of acquisition (marketing, referral, organic, etc.). Segmenting customers into cohorts enables the higher level analysis which leads to strategic decision making. Using our example from above, you might consider having separate new ACV bookings targets for small/medium and enterprise customers. You may establish renewal bookings targets that differ by the age of your cohorts (in a given quarter, older cohorts should have higher retention than newer cohorts). Lastly, you should have different bookings targets by acquisition channel to incentivize the sales and marketing behavior which generates highest CLV (customer lifetime value).

Revise and Repeat

Once you've established your targets, it is important to track results and then revise your estimates as strategic objectives change. Continuing with our bookings target example, if you miss on new ACV bookings, then you should quickly determine why you missed (by looking at the cohort data) and revise targets. Let's say you missed new ACV bookings because the organic channel lagged expectations. You could decrease your organic target for the next quarter while simultaneously increasing marketing spend and the new ACV target from customers acquired through marketing.

The Dashboard

Now that I've explained why each SaaS company should have their own custom dashboard for their business, I present to you my generic SaaS dashboard (attached at the bottom). Oh, sweet irony! All kidding aside, I've created this dashboard over a couple of years and it includes best practices for how to calculate the high level metrics every CEO should track. You should definitely take these basic building blocks and customize the dashboard to meet your specific needs.